Question

What are the main liabilities of Bank of Canada? Explain. Under what circumstances will these liabilities change? Provide examples.

Answer 1

Bank of Canada is considered as the central bank in Canada. It governs the monetary and fiscal operations of the financial government. It also acts as a sole issuer of bank notes in the Canada. The Objectives of the bank are lies with the maintaining the stable inflation rate and the financial and economic condition. Its has main liabilities. Let us discuss briefly with the following points.

Bank has $23 billion from the deposits from the government and $3.5 billion from other sources of funds. Such deposit currently constitutes the liabilities of the bank. It also has $95 billion of government debt worth around and across the countries. Due to some remedial measures taken by the bank, the foreign exchange reserves deposited through earned income which crossed $10 billion.

Such value of the liabilities can be changed with the various circumstances witnessing with unexpected financial crisis when it crossed the debt of more than $4 billion. The situation occurred when it faced financial crisis in around 2015, when the rate of trading with the neighboring country US affected with earning less foreign exchange. The Bank of Canada quickly took best initiatives by holding the treasury bills of worth 30 days active by avoiding the loss deriving from the US markets. The bank adjusted its inflation rate accordingly with the tariff rate fixed by the US State when it allows the Canadian products to finds its market.

Through the Large Value Transfer System (LVTS) of Canadian Payment System Association has favored the many traders of the Canada to get the lump sum of foreign exchange reserves trading through US country and other European countries and thus helps them to clearing their formalities in the procedure of balance of payments in short-run as well in long-run export period. The liabilities are tend to change when any financial crisis took place in-between smooth way of economic development.

For example, In 2008, The Canada government also followed strict non-conventional monetary policy, when it also witnessed the financial crisis. Such non-conventional monetary policy includes fixing low interest rate on assets purchased by the bank and also the system of quantitative easing. i.e. creation of new liquidity funds were injected in to the economy in order to avoid the effects of such global financial crisis.